There has been widespread concern about the Treasury’s suggestion that regional pay could be introduced in the public sector and the prospect of local benefits sparked intense opposition.

David Cameron yesterday showcased changes to the benefits system that a future Conservative Government could pursue and his spokesman confirmed that regional benefits were on the table.

The spokesman said: “We are looking at the question of whether or not it makes sense that you set all benefit levels at a national level or whether or not there should be some local or regional dimension.

"Clearly, wage rates vary around the country and what someone receives in benefits compared to what they could potentially get by going into a job has an impact on the incentives they face.

“That is the logic for looking at this question.”

Wales has the lowest average gross weekly pay in the UK at £519.40, below Northern Ireland (£528.80), Scotland (£574.70) and London (£826.40).

Lynne Hill of the Cardiff-based charity Children in Wales reacted with alarm to the briefing. She said such a policy would send a message to poorer regions that “your families are worth less”.

Ms Hill said: “We are very concerned about the whole of the benefit changes at the moment and the impact they are having, mainly negative, on children and families in Wales. Wales does very poorly amongst the other nations in its poverty [and] anything that puts them under more pressure is very concerning.”

Ms Hill was concerned about the consequences for child poverty if regional benefits resulted in even lower household income. Parents were often going without food and heating to keep households afloat.

A Welsh Government spokesman said: “There appears to be a great deal of confusion surrounding the Prime Minister’s proposal. However, should any attempt be made to introduce regional rates of benefits, we will resist such a move.

“Wales will be hit disproportionately compared to many other parts of the UK by the welfare reforms already proposed by the UK Government. Any attempt to introduce regional benefits will just make matters worse.”

He continued: “With prices in many areas of Wales being much higher than in other parts of the UK, the imposition of a regional benefit regime would simply compound the problem. We have already published evidence showing the case for regional pay is flawed.

“The case presented by the Treasury for regional pay is full of assertions made without any solid basis in the evidence, and this does not give us any confidence that the case for regional rates of benefits is built on solid foundations.”

A spokesman for the Welsh Liberal Democrats stressed the party would not support regional benefits.

He said: “David Cameron was airing his views as leader of the Conservatives and not as prime minister of a coalition government.

“This is not coalition policy. Liberal Democrats will not support this.”

Mark Williams, Lib Dem MP for Ceredigion said: “The notion that living is cheaper in rural areas is simply not the case, and this can be seen when comparing prices of fuel and food. Receiving less for choosing to live in a rural area is certainly not something I would agree with.”

A spokesman for the Conservative Assembly group said: “This is a discussion point that the Conservative Assembly group would engage with fully in order to make sure Wales’ position is understood. We are opposed to the idea of regional pay on the basis that it could disadvantage thousands of public sector workers.”

Plaid Cymru MP Hywel Williams said: “David Cameron’s plans to cut housing benefits for young people under 25 are illogical and short-sighted. Most young people getting help with sky-high housing costs are actually in work...

“Equally the Prime Minister’s pet project of regionalised benefits is plain barmy. This would further institutionalise poverty and create employment ghettos in which the existing lack of jobs, prospects and ambition would be intensified rather than addressed.

“Plaid Cymru will oppose these plans now and up to the next election,” he said.

Luned Jones, Cuts Watch Cymru spokesperson said that while they supported the principle of simplifying the welfare system, “we have yet to see or feel the full effects of the first wave of reform and cuts”.

So the proposal of further radical reforms will be of great concern, she said.

“We must not forget that many people with low-paid jobs or part-time work also receive some benefits to supplement incomes. Many people in work are still living in poverty. We could see more and more working people pushed further into poverty.”

A Whitehall source defended the Prime Minister, pointing out that in January Labour Shadow Work and Pensions Secretary Liam Byrne had said: “If you want to send a signal that you are better off in work than on benefits, wouldn’t it make much more sense to have localised caps in different parts of the country because we know there are different levels of housing benefit in different parts of the country?”

Labour Shadow Welsh Secretary Owen Smith commented on reports that early versions of Mr Cameron’s speech had included specific comments about regional benefits, saying: “For someone who’s spent his political career trying to hide the true nature of his party, he may have thought this would be one toxic policy too many. The Prime Minister’s priority when it comes to welfare spending should be addressing the extra £5bn his government has added to the unemployment benefit bill as a result of tipping our economy back into recession.”

Asked why he had dropped the section on regional benefits from his speech, the prime minister’s official spokesman said: “What he was doing in his speech was starting a debate on the welfare system. He set out a number of questions which we need to address.”

Asked again, he replied: “Speeches go through a number of drafts. It would not be right for the Prime Minister to say there should be a national debate and then set out the precise parameters for that debate.”

Asked a third time, he said: “I’m not going to go into lots of process. He believes there should be a big debate about this.”

Asked if Mr Clegg had asked him to drop the section, the spokesman said: “No.”

He went on: “Occasionally, politicians do want to set out ideas and direction.”

Asked if one of these ideas was regional benefits, he said: “It’s already been proposed by others. He does not seek to constrain the debate but wants to have a broad one on the issue of welfare.”

Mr Cameron also signalled a future Conservative Government could break the link between benefits and inflation to save money on the £84bn bill for working-age welfare.

Other ideas floated by the PM included withdrawing housing benefit from under-25s, removing the right for high-earners to keep their council homes, a reduction in the £20,000-a-year cap on housing support and limits on the additional benefit received by families with three or more children.

New requirements could be introduced for claimants to learn to read and write, to draw up a CV and to take action to improve their health to continue receiving benefits.

And single parents could be required to prepare to go back to work once their child has reached three years old.

The Government is already cutting the point after which lone parents have to seek work from seven to five years after their child’s birth. But Mr Cameron suggested that once the child is three, parents should at least be spending part of the week going to the JobCentre, preparing their CVs and learning skills.

Mr Cameron stressed that he was not setting out policy plans but trying to start a national debate on the future of welfare.

He said he aimed to work with his Liberal Democrat partners on some of the ideas in the next few years, but that others might feed into the Conservative manifesto for the general election expected in 2015.

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